Legal risks in enterprise trademark assignment

By Wang Yadong and Lu Lei, Run Ming Law Office
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A trademark is one of the core intangible assets of enterprises, and trademark assignment refers to the transfer of the exclusive right to use the trademark from one party to another. Trademark assignment is a common legal issue in the case of the establishment of the enterprise with trademarks as its investment, the acquisition or sale of enterprises and brands, the liquidation and divestment of enterprises, and other corporate restructuring.

Wang Yadong, Executive Partner, Run Ming Law Office
Wang Yadong
Executive Partner
Run Ming Law Office

Trademark is an intangible property right, and the transfer and change of its rights has its own characteristics compared with that of the tangible property rights, including: when the parties reach a consensus, the delivery of tangible property is completed upon the transfer of the possession of the tangible property; while in trademark assignment, the assignee cannot obtain a trademark through “possession” – instead, the transfer of rights takes effect only after the competent authorities have handled the assignment procedures and announced it publicly.

Civil legal relationships and administrative legal relationships should be dealt with in the trademark assignment procedure, and the time lag between the effectiveness of the assignment agreement and the transfer of the trademark right also increases the legal risks in trademark assignment.

The legal basis. Article 42 of the Trademark Law provides: “To assign a registered trademark, the assignor and assignee shall sign an assignment agreement and jointly file an application with the Trademark Office. The assignee shall guarantee the quality of the goods on which the registered trademark is to be used. In case of assignment of registered trademarks, the trademark registrant shall assign the similar trademarks on the same goods, or the same or similar trademarks on similar goods registered by it concurrently. The Trademark Office shall not approve any assignment of registered trademarks that may easily lead to confusion or other adverse effects, and shall notify the applicant in writing and state the reasons. The assignment of a registered trademark shall be published after it has been approved. The assignee shall enjoy the exclusive right to use the trademark starting from the date of publication.”

A deep understanding of the above legal provisions will help to strengthen the identification and prevention of relevant legal risks in the trademark assignment.

Agreement risks. According to the previously-mentioned legal provisions, trademark assignment should be based on the conclusion of assignment agreement, and such a legal relationship not only involves relevant provisions of the Trademark Law, but also relates to the Contract Law and General Principles of the Civil Law. According to the spirit of the Contract Law, a contract must be effective when the following requirements are met: the subject has the capacity to reach agreements; the content is certain, possible and legal; the contract should be the true intention of the parties; and the forms of the contract should be legal.

Lu Lei, Partner, Run Ming Law Office
Lu Lei
Partner
Run Ming Law Office

Therefore, the validity of the trademark assignment agreement must also be reviewed in accordance with the above requirements. Otherwise, the purpose of the agreement cannot be achieved due to the invalidity or revocation of the agreement. For example, when it comes to the ability to reach agreements, the assignor is required to be the exclusive right owner of the trademark. In the IPAD trademark dispute, Proview in Shenzhen was the exclusive right owner of the trademark, but Apple entrusted an IP company to sign the trademark assignment agreement with Proview’s Taiwan affiliate, making the agreement become unenforceable due to the wrong subject.

In the case of trademark co-ownership, the trademark assignment must take effect only when the assignment is agreed upon by all co-owners. When only one of the co-owners agrees, the effectiveness of the agreement shall remain undetermined, and if other co-owners do not confirm the assignment subsequently, the agreement will be null and void.

In many assignment agreements, the assignment is agreed upon as free assignment, making the nature of the agreement become a contract of gift. According to provisions of the Contract Law, the donor may revoke the gift at any time before the delivery of the subject matter of the gift contract. Therefore, as long as the trademark right has not yet been transferred, the assignor may revoke the gift at any time, thus bringing a huge risk in the stability of the contract.

Finally, in practice, problems often occur when it comes to the confirmation of the true intention. The disposal of the core trademark is often considered to be a major company decision, and often needs to be confirmed by resolution of the board of directors. Otherwise, when the company alleges that the assignment is not its true intention, the agreement may also be exposed to the risk of invalidation.

Procedural risks. The conclusion and validity of the assignment agreement is a prerequisite for the assignment of trademark rights, but it will not inevitably lead to the transfer of trademark rights. According to the aforesaid legal rules, to assign the trademark, the assignor and the assignee should jointly file an application with the Trademark Office, and the Trademark Office is entitled to reject the application for trademark assignment. In other words, even if the agreement is valid, if the application for assignment cannot be approved, the assignee is still exposed to a great risk.

For example, when the Trademark Office has any doubt about the authenticity and validity of the assignment after receiving the application for assignment, it may request relevant documentation or a notarized copy, etc. If the agreement is not notarized at such time and the assignor refuses to co-operate, it will lead to failure in trademark assignment.

Another example, in case of trademark assignment, is where similar trademarks on the same or similar goods should be transferred concurrently. Where the application for the assignment of above-mentioned similar trademarks is not filed, the Trademark Office will request the applicant to make corrections to transfer such similar trademarks concurrently. If the applicant fails to make the required corrections, the application for assignment will be rejected. Therefore, it is crucial to identify the subject of the assignment before the assignment.

The pledge, freezing, revocation, invalidity or encumbrance concerning the trademark will also affect the assignment of trademark rights. Finally, the Trademark Office may refuse to approve the application for assignment on the grounds of other adverse effects, and so therefore sometimes policy risks should also be taken into consideration.

Wang Yadong is the executive partner and Lu Lei is a partner at Run Ming Law Office

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